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Financing Technical andVocational Educationand Training in thePeoples Republic of China


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Abbreviations

ADB Asian Development Bank

GDP gross domestic product

OECD Organisation for Economic Co-operation and Development

PRC Peoples Republic of China

TVET technical and vocational education and training

Currency Equivalents(As of 2 December 2009)Currency Unit Yuan ()

1 = $0.15$1 = 6.83

NoteIn this report, $ refers to US dollars


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Financing Technical andVocational Education

and Training in thePeoples Republic of China


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Acknowledgments

This policy note draws upon the findings of an ADB technical assistance (TA) project in Guangdong andHunan provinces to conduct an in-depth study on Technical and Vocational Education and Training.

The note was first drafted by TA consultants, Fred Fluitman, with the support of Liu Yufeng. It wascommented on, and guided by Klaus Gerhaeusser, director-general of East Asia Department; Amy Leung,director of Social and Urban Sectors Division; Robert Wihtol, country director of the PRC Resident Missionand Jouko Sarvi, practice leader (Education) in ADB. Eisuke Tajima, education specialist and a taskmanager of the TA project, coordinated the process and developed the note.

Valuable inputs were provided by David Ablett and Celine Peyron Bista. Assistance was given by MilaDe Leon, Yurong Tao, Andrea Trinidad Echavez, and the team of the Department of External Relations.Translation was completed by Yinfeng Zhi, and editing was done by Pamposh Dhar and Kate Tighe.

The note also benefited considerably from the advice and support of Peijun Liu, director of ComprehensiveDivision of the Department of Vocational Education and Adult Education in Ministry of Education, Li ShuYuan, director of the Debt Management Division in the Bureau of Finance of Guangdong Province, and

Ren An, director of the Foreign Economy and Trade Division in the Bureau of Finance of Hunan Province.

Cover Photograph: Bureau of Finance of Guandong Province


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T

he knowledge and skills that people bringto work are critical factors in economic andsocial development. Governments around

the world implement policies to give peopleaccess to education and training. However, techni-cal and vocational education and training (TVET)systems are often burdened by a range of perfor-mance issues. Many of these are rooted in prob-lems that countries, including the Peoples Republicof China (PRC), have in generating and allocatingthe necessary financial resources, and in spendingthem effectively. This note will discuss such issuesand present policy recommendations based oninsights gained in Asian Development Bank (ADB)-sponsored policy reviews of TVET in Guangdongand Hunan provinces1.

Skills to Sustain Growth andPromote Equity

The development of technical, vocational, andother work-related skills is important to prepare

1 ADB. 2006. Technical and Vocational Education Training Development. Manila. (Technical Assistance 4868-PRC).

people for available jobs and to maintain and raiseworker productivity. The PRC needs TVET to supportthe countrys high levels of economic growth and

to promote equitable social development.

As a result of comprehensive policy reforms initiatedin the early 1980s, economic management shiftedsignificantly from central planning toward a market-driven allocation of resources. Trade and investmentincreasingly integrated the PRC into the globaleconomy. The structure of the countrys economyrapidly moved away from agriculture to manufac-turing and services, raising the average productivityof labor. Millions of rural workers left homes andpoverty behind to find jobs in ever-growing cities in

Competitiveness will be relatedto product quality, and workercompetence will be a decisivefactor for national economicgrowth.

Sustained economic growth has improved standards of living of a number of people. Yet many challenges remain. Policies areneeded to reduce poverty and increase employment opportunities for young people.

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4

Table 1: Students in Secondary Vocational Schools by Field of Study (2007)

Source: Government of the Peoples Republic of China, National Bureau of Statistics. 2008. China Statistical Year Book. Beijing.

ever more enterprises producing for both export anddomestic markets. They account for more than 60%of the countrys industrial workers.

Sustained high rates of economic growth have

dramatically changed the PRC and improved livingstandards for a large number of people. Per capitaincome, currently around $2,000, has risen fivefoldsince 1980. Yet many challenges remain.

Policies are needed to reduce poverty and increaseemployment opportunities for young people. Majorchallenges include regional disparities, growingurban unemployment and persisting rural under-employment, rising income and wealth inequalities,accidents at work, and industry-linked environmen-tal threats.

As a result of the countrys rapid integration intothe global economy, the PRCs economy and labormarket are becoming more vulnerable than be-fore to external developments. Improved workingconditions and the rising cost of labor appear incertain sectors to have affected the competitive-

ItemNew

EnrollmentTotal

Enrollment Graduates

Total 6,514,754 16,198,590 4,312,433

Agriculture and Forestry 246,993 589,056 175,404

Resources and Environment 51,290 125,508 34,642

Energy 43,858 119,921 34,845

Civil and Hydraulic Engineering 154,996 400,464 101,340

Manufacturing 1,682,908 3,933,142 899,915

Communication and Transportation 220,341 521,174 124,150

Information Technologies 1,638,954 3,931,972 1,108,660

Medicine and Health 477,527 1,371,676 360,584

Trade and Tourism 525,027 1,357,189 380,218

Finance and Economics 379,049 969,843 276,196

Culture, Arts and Physical Education 345,431 897,787 236,846

Public Affairs 164,821 418,863 138,813

Teacher Training 254,321 690,872 212,242

Other 329,238 871,123 228,578

ness of firms, making employers choose labor-sav-ing technologies, higher value-added production,and better trained rather than more employees. Inother sectors, large numbers of workers, in par-ticular those with limited skills, are losing their jobsdue to falling demand in export markets.

Rates of economic growth averaging almost 10%per year over the past 25 years have been associat-

ed with an annual net employment growth of onlyabout 1%, the rest being made up of productivitygrowth. High overall productivity growth, however,has not necessarily been an outcome of investmentin human capital. The contribution of past educa-tion and training efforts represents a minor factor

Development of a nationaleconomy needs to be supportedby workers effectiveness andhigher productivity, and dependson adding more value anddelivering better outputs.


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compared with massive layoffs from less productivestate-owned enterprises and the shift from agricul-tural labor to more capital-intensive manufactur-ing. The widespread use of computers and othernew technologies, and improvements in the organi-

zation of work have also boosted productivity.

The recent global economic crisis and the col-lapse of external demand have reduced the role ofexports as a driver of economic growth in the PRC.After the crisis, a series of government initiativesthat boosted domestic demand, provided fundingto encourage individual business start-ups, andstrengthened support to vulnerable groups havecontributed to employment generation. Theseinitiatives helped create about 7.5 million new jobsin urban areas during the first eight months of2009. However, it is unlikely that the PRC will ex-

perience the double-digit growth rates of previousyears. Once the global economy recovers, demandon the export sector in the PRC is likely to increaseagain. In addition, in the medium and long terms,more sophisticated industries and services are likelyto take root. In all these industries, competitive-ness will be related to product quality, and workercompetence will be a decisive factor for nationaleconomic growth.

New entrants to the countrys labor force includeschool graduates and former soldiers. Those whoare under skilled include farm workers leaving the

land in search of better pay, people at risk of beinglaid off from losing enterprises, and the unem-ployed and underemployed. The country needs tofind a good balance between a rise in productivityand an increase in jobs for these workers.

An interesting profile of the PRC is that the countrymoves to an aging society. The PRCs lowermortality rate than other countries, combined withthe one-child policy, has resulted in a dramaticaging of the population. The aged population isgrowing at its fastest rate since 1949, and would

increase by 8 million in 2009, up from a 3.11-million annual increase a decade ago. Developmentof a national economy needs to be supported byworkers effectiveness and higher productivity,and depends on adding more value and deliveringbetter outputs. TVET development has become anurgent task, its role becoming even more criticalfor national socioeconomic development in themedium and long terms.

It is the PRCs ultimate goal to promote a xiao-

kang society, i.e. a society in which everyoneenjoys a reasonable share in newly created wealth.This means both efficiency and equity argumentsshould come into play in boosting employabilityand competence at work. One way to do this is toincrease access to relevant, well-conceived, andwell-delivered TVET programs.

Technical and Vocational Educationand Training: More of the Same orSystemic Change

The PRCs TVET system has obvious strengths,including a large number of excellent schools thatare able to adjust to new demands. Moreover, alarge proportion of the countrys teachers andtrainers have shown themselves to be capableof preparing growing numbers of students for arole in pulling off the economic miracle and inkeeping it going.

The social relevance of TVET isto be seen in the light of equity,such as in terms of access to TVETfor vulnerable groups of people,or, more broadly, the role of thesystem in reducing poverty.

Improved working conditions and the rising cost of labor ap-pear in certain sectors to have affected the competitivenessof firms, making employers choose labor-saving technologies,higher value-added production, and better trainedrather thanmoreemployees.

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There are also severe weaknesses, raising concernsabout the TVET systems ability to produce an increas-ing number of competent and highly skilled workersyear after year. The question is whether to expand thesystem by continuing to do more of the same; or

whether the time is ripe for systemic change.

Three major yardsticks are useful in examining theperformance of a TVET system: (i) its economic andsocial relevance, (ii) its effectiveness in delivering onpromises and plans, and (iii) its efficiency in termsof making the best use of available resources.

The systems economic relevance is mainly a mat-ter of meeting with some precision the demands ofemployers who need competent employees. Serious

Box 1: Structure of the PRCs Education and Training System

Source: Government of the Peoples Republic of China, Ministry of Education. Beijing.Various references. www.moe.edu.cn/edoas/en/

While TVET systems elsewherealso suffer from fragmentation,much has been gained in somecountries from creating umbrellaor apex bodies composed of thevarious partners.

mismatches between labor market supply and de-mand are costly and undesirable. The social relevanceof TVET is to be seen in the light of equity, such asin terms of access to TVET for vulnerable groups ofpeople, or, more broadly, the role of the system inreducing poverty. The effectiveness of a TVET system

POSTGRAD

TECHNICAL &VOCATIONAL

COLLEGES

AGE 15

Post-Basic Education and Training

6-YEAR PRIMARY SCHOOL

3-YEAR JUNIOR SECONDARY SCHOOL

UNIVERSITIES

Basic CompulsoryEducation

VOCATIONALTRAINING

Labor Force

3-YEAR SENIORSECONDARYSCHOOLS

2-3-YEAR VOCATIONAL& TECHNICAL SCHOOLS

VOCATIONALTRAINING


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shows in its ability to deliver quantity and qual-ity as needed, which is related to the level of givenresources. Internal efficiency is about turning inputsinto outputs, in particular about ways and means oforganizing, managing, and financing the TVET sys-tem, including ensuring the necessary oversight.

Using relevance, effectiveness, and efficiency asyardsticks in a diagnostic process reveals severalconcerns. But first, it is important to distinguishsymptoms from root causes. Solving certain prob-lems may be futile if others underlying them arenot addressed first.

In the case of the PRC, underlying problems af-fecting the performance of the countrys TVETsystem include weak labor market links, consider-able fragmentation of efforts, and poor manage-ment practices. Another fundamental concern isthe adequacy of financial means, and a range ofinefficiencies and inequities that are evident inspending available resources. Clarity and consensusabout levels of investment, as well as sources offunding and funding mechanisms, will go a longway to solving a number of related problems in themedium and long terms.

The PRCs TVET system is considerably fragmentedmainly as a result of historical factors, decentraliza-tion, and a tendency among public authorities toview private training providers as intruders ratherthan as potential allies. Although the PRC has re-cently established the intergovernmental forum ofTVET activities, it has not functioned very well. Thistranslates into the coexistence of learning institu-tions whose mandates, operating practices, train-

Available qualitative dataand views based on firsthandexperience suggest considerablescope for improvement when itcomes to financing TVET.

Development of a national economy needs to be supported by workers effectiveness and higher productivity, and depends on add-ing more value and delivering better outputs.

FredFluitman


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8

ing methods, and products may look similar, but infact are not. With little coordination, inefficienciesare believed to be widespread, but hard to demon-strate, as oversight is far from comprehensive.

While TVET systems elsewhere also suffer fromfragmentation, much has been gained in somecountries from creating umbrella or apex bodiescomposed of the various partners who are chargedwith providing policy direction and making sure

that the demand for skills is met as much aspossible. These councils or agencies, whose termsof reference may vary, often also play an active rolein generating and allocating resources, as well asin collecting and analyzing pertinent information,assuring quality, certifying skills, and other tasks asappropriate.

Financing Technical and VocationalEducation and Training

How much money goes around in the PRCs educa-tion and training system? How well it is spent?These are questions not easily answered. Even ifa standard set of national education data is dulycollected and presented on a yearly basis, cur-rent information on funding and spending needsto greatly improve. The statistics available do notalways cover the whole system, they may not becomparable, or they may be out-of-date or contra-dicted by other statistics. Nevertheless, availablequalitative data and views based on firsthand expe-

Box 2: Spending on Education in OECD countries

Taking into account both public and privatesources of funds, OECD countries as a wholespend around 6.0% of their collective GDP oneducational institutions. The highest spending oneducational institutions is in Denmark, Iceland,the Republic of Korea and the United States, withat least 7.0% of GDP accounted for by publicand private spending on educational institutions,followed by Mexico and New Zealand with morethan 6.5%. Nine out of 30 countries for whichdata are available spend less than 5.0% of GDPon educational institutions; in Greece and in theRussian Federation, the figure is 4.2% and 3.8%,respectively.

Source: Organization for Economic Co-operation and Develop-ment (OECD). 2005, 2008. OECD Education at a Glance 2005,

OECD Factbook2008. Paris.

rience suggest considerable scope for improvementwhen it comes to financing TVET.

Four sets of issues surround the financing of educa-tion, including TVET. The first of these concerns

purpose and aims, or social and economic rele-vance, or the sort of returns one would expect fromallocating resources to education and training. Whyshould the government, or enterprises, or individu-als, invest in knowledge and skills rather than inhealth, housing, or other worthwhile causes? Theanswer is that the investor will benefit throughsufficient workforce employability, high laborproductivity, and economic growth. This will enableindividuals to move out of poverty, enterprises tomeet their production targets, and the country toachieve a range of development objectives includ-ing greater competitiveness and a further reduction

of poverty.

A second set of issues concerns levels of spending.While it is difficult to say exactly how much moneyis sufficient, levels of investment need to reflect thevalue attached to social and economic benefits thatcertain types and levels of education and trainingbring, as well as what the country and its peopleare able and willing to afford. Before spendingmore in a particular location, or on a particulartype of education and training, evidence of returnson earlier investments must be reviewed togetherwith opportunities to improve efficiency and equity

in current spending.

The social relevance of TVET is to be seen in the light of equity,such as in terms of access to TVET for vulnerable groups ofpeople, or, more broadly, the role of the system in reducingpoverty

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Thirdly, it is important to consider and decide whoshould pay for education and training, or who

should pay more, or less, than they do already. Thefunding share of government, the level of tuitionand other fees that students pay, and the finan-cial contribution of enterprises employing skilledworkers, may be reviewed in terms of fairness andaffordability.

Finally, for the sake of efficiency and transparency,policy makers need to consider which among mul-tiple channels and mechanisms are most suitableto transfer the necessary funds from the source tothe destinations and how financial flows are bestmanaged.

Current Spending on Education

It is surprising that the PRC, a country with impres-sive economic growth rates year after year, spendssignificantly less of its national income on educa-tion than countries with the highest incomes perhead and much lower growth rates. In fact, thePRC has long spent less on education in proportion

to its national product than most other countries inthe world. Total education spending from all public

and private sources gradually increased from justover 3.00% of gross domestic product (GDP) in the1990s to around 4.60% of GDP in 2006. Govern-ment expenditure, including both budgetary andother appropriations, has for many years been lessthan 3.00% of GDP, the level that was reached3.32% in 2007.

As the PRCs GDP has been growing rapidly formany years, overall education expenditure, includ-

It is surprising that the PRC, acountry with impressive economicgrowth rates year after year,spends significantly less of itsnational income on educationthan countries with the highestincomes per head and muchlower growth rates.

Investors will benefit from TVET programs through sufficient workforce employability, high labor productivity, and economicgrowth. This will enable individuals to move out of poverty, enterprises to meet their production targets, and the country to achievea range of development objectives including greater competitiveness and a further reduction of poverty.

EisukeTajima,

ADB


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10

ing public expenditure, has increased continuouslyand considerably in absolute terms. High growthrates are less impressive, however, once correctedfor inflation. Further, major variations in spendingexist between and within regions, and between

different types and levels of education. As enroll-ments go up and down, changes in expenditureper student (in real terms) also become relevant.Thus one may find, in some places, that total and/or per-student expenditure on TVET has decreased,while that on university education has increased.

The PRC does not meet the 4% public expendituretarget that the central government has set andreset repeatedly since the 1980s, mainly becauseof institutional factors such as budgetary prac-tices and the devolution of responsibility for mosteducation to the provincial level and below. Fund-

ing primary and junior secondary schools is nowcompletely left to local authorities which, if theyare not short of money to begin with, may holdopinions of their own on the relative importance ofeducation and training.

The composition of education funding by level andtype of education, or by region, or in terms of out-lays per student, provides a better picture than thetotal amount a country spends in relation to its GDP.Data for 2006 suggest that regular higher educationinstitutions received 30% of total education fundingand 21% of government appropriations. The PRCs

massive investment in higher education means thatother levels and types of education get less.

While such shares are not exceptional by interna-tional standards, they should be related to num-bers of students enrolled. Thus, against the back-drop of an unprecedented growth in the numberof university students in recent years, the PRCspent, for every tertiary level student, an amountroughly equal to its per capita national income ascompared to an average of some 40% of incomeper head in countries in the Organisation for Eco-nomic Co-operation and Development (OECD). Thetotal outlay of 13,800 ($2,019.91)per studentincluded a government contribution of 5,900

($863.58), pointing at a hefty share of tuition andother contributions from private sources.

Senior secondary vocational schools, the first andlargest skills development station in the system,represented 6% in total education funding in2006, down from 7% in 2003. The amount perstudent was 3,064 ($448.48) in 2005, including

a government contribution of 1,651 ($241.66).Meanwhile, parallel senior secondarygeneraledu-cation attracted 13% of total funding, or 4,325($633.05) per student, including a governmentcontribution of 2,213 ($323.91) per student. Theconsiderable difference in government fundingbetween the two secondary school types is madeup by a significantly higher share of student-feeincome in the case of vocational schools.

The PRC has recently set as its strategic national ob-jective a major development of human resources,

promoting the implementation of the Knowledgeand Skills for All program. Among various levelsand types of education, TVET is not prioritized, andhas received inadequate funding.

These findings are worth mentioning because theyseem at odds with current policy objectives togive greater priority to TVET and encourage equalnumbers of junior secondary graduates movinginto general and vocational streams. Moreover the

Among various levels and types ofeducation, TVET is not prioritized,and has received inadequatefunding.

A TVET class. There is a need to reexamine government fundingon TVET programs.

EisukeTajima,

ADB


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findings either contradict the conventional wisdomthat unit costs in general education are lower thanin TVET or, alternatively, suggest the governmentunderfunds the latter.

To allocate funds more effectively for TVET ineducation, the government urgently needs toestablish and implement a legally-supported unitcost per student of TVET. This was stipulated andsupported by the Vocational Education Law of the

Peoples Republic of China (1996). But, to thisdate, it has not been agreed, and national discus-sion still continues with different views from vari-ous stakeholders.

While low levels of funding for TVET may have hadlittle effect on the PRCs economic growth so far,shortages of skilled personnel are said to be onthe increase and more and more employers faceproblems in recruiting competent people. At thesame time, large and rapidly increasing numbersof recent university graduates are said to join the

ranks of the unemployed.

Sources of Funding: Who Pays forEducation and Training

Public FundingThe PRCs current Five-Year Plan, covering the20062010 period, includes among its main objec-tives increasing government funding for educa-tion and training to 4% of GDP. The plan sets fourgoals for education: (i) achieving 9-year compulsoryeducation for all, (ii) increasing progression from

junior to senior secondary school to around 80%with equal shares for general and vocational schools,

(iii) increasing the postsecondary progression rate toaround 25%, and (iv) improving the quality of highereducation. However, there is no consolidated bud-get to show how much the various plans will costand where the money should come from.

Financial contributions byenterprises are not significant inthe PRC.

Among various levels and types of education, TVET is notprioritized, and has received inadequate funding.

The fees that students of public vocational secondary schools pay in the PRC are among the highest in the world.

BureauofFinanceofHunanProv

ince

BureauofFinanceofHunanProvince


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12

Having decentralized authority for education andtraining, the responsibility for funding and imple-menting broad intentions appear to be left to provin-cial and city authorities, if not to school managers.

As part of recent education reforms, the PRC hasexplicitly embraced the principle of beneficiariesof TVET sharing the financial burden. However,legislation to provide a basis for the diversifica-tion of funding sources has so far mainly meantthat tuition and other fees have increased sharply.The share of government appropriations in totalfunding has declined steadily and rapidly in recentyears, from well over 80% in 1990 to about 60%today. The contribution of enterprises remainsinsignificant.

Tuition and Other Fees

In many countries, including most industrializedones, vocational secondary education is primar-ily funded by governments; tuition or other feesare uncommon. Moreover, recognized privateinstitutions that play a part in the process may besubsidized by the state. In the PRC, tuition andother fees are an important source of fundingfor vocational schools together with governmentcontributions. Minor sources are sales of goodsproduced in schools, and donations. The share offees increased from 5.1% of total education fundsin 1992 to 15.8% in 2006. These are averages;relative shares of government and private funding

Financing TVET in the PRC is verymuch part of financing educationin general.

A student in one of the TVET schools. Lowering vocational feesacross the board encourage more students, especially the poor,to enroll in TVET programs.

FredFluitman

vary considerably by level and type of education,as well as by region. In many instances, the feesthat vocational students pay exceed the amount ofgovernment contributions.

The fees that students of public vocational second-ary schools pay in the PRC are among the highestin the world. Often over 2,000 ($292.74) peryear, they easily add up to half the annual incomeof many household in the country. The tuition feesfor students who choose special subjects, includ-ing mechanical engineering and digital arts, reach

3,000-5,000 ($439.11-$731.85) per year. Thesefees are also higher than those charged by the gen-eral secondary schools to which better-off familiesprefer to send their children; and they often exceedactual recurrent costs per student per year, presum-ably in order to cover part of capital investment.

A number of student support schemes do exist.One scheme was introduced recently to provide1,500 ($219.55) a year for board and lodging toall vocational school students with rural residencepermits, i.e. from poor families, as well as a limitednumber of poor students from urban areas. Underanother scheme targeting poor families, tuition iswaived for some 12,000 Guangdong vocationalschool students, or about 1% of total enrollments.No comprehensive data are available to show howmany vocational students in the PRC benefit fromsubstantive government support.

Lowering vocational school fees across the board,or doing away with them, would encourage morestudents to choose TVET, which corresponds to cur-rent government priorities. It would also be a wayof addressing dire and worsening income inequali-

ties. Abolishing or lowering fees considerably for allwould also do away with the rather discriminatorydual-track option (work-study programs) nowoffered by a good number of schools and involv-ing, for example some 20,000 students in Guang-dong Province. This option lets students from poorfamilies follow half the standard program, leavingthem sufficient time to work and earn their tuitionfees in a nearby factory contracted by the schoolfor what is called a win-win arrangement.


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Improving the quality ofeducation requires financialinputs.

A TVET teacher demonstrates to a student the proper way of handling equipment. While TVET can be a promising tool in spurringeconomic growth in the PRC, there are still a lot of things to be done, including policy changes in the program.

EisukeTajima,

ADB

EnterprisesFinancial contributions by enterprises are not sig-nificant in the PRC. The study shows that there is

a common view, favored by enterprises and schooldirectors, that employer contributions are not nec-essary and it is not reasonable to expect them. TheVocational Education Law of the Peoples Republicof China (1996) nonetheless states that enterprisesmust provide for the training of current and futureemployees and that the government should formu-late concrete measures to ensure this. There is noevidence to suggest that this has happened any-where so far. While a number of large enterprisesattach considerable importance to training theirworkers, a majority appear comfortable with theidea that the government should ensure a steadysupply of skilled workers free of charge.

Funding Channels and Mechanisms

Money to pay for TVET flows from single or mul-tiple sources through a variety of channels andmechanisms to multiple destinations. Schools andtraining institutions receive direct allocations fromvarious government budgets, as well as tuition and

other fees paid to them by students, payments byenterprises for services rendered, and donations byenterprises.

However, governments may also give grants orloans to students and pay teachers and trainers di-rectly, rather than via the school budget. They maychannel resources in the form of vouchers, for ex-ample to enhance participation from among disad-vantaged groups or to introduce some competitionamong schools to improve quality. Governmentsmay provide fiscal incentives to enterprises to traintheir workers, or to private training providers totake in more trainees. Students or their parentsmay pay the government in the form of taxes, andenterprises in the form of training wages withheld.National, regional, or sectoral training funds mayexist as intermediaries, for example, to disburse in-come from training levies. Public investment banksmay help finance capital expenditure.


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The choice of channels or mechanisms of fundingcan make a great deal of difference to efficiency,effectiveness, and equity. Efficiency varies betweenchannels in terms of leakage or the time it takesfor funds to pass; equity in allocation may depend

on who manages the flows of funds; and the will-ingness of enterprises to pay may relate to trans-parency and the effectiveness of oversight. Whichchannel is most appropriate depends on wherefunds originate, how they flow, what they will payfor, and how flows are best managed betweensource and destination. Considering all this, re-sources need to be managed in a more integratedmanner than they are at present. Possible fund-ing sources include special funds from the centralgovernment, commercial funds, and internationalassistance.

Financing TVET in the PRC is very much part of fi-nancing education in general. The same authoritiesdecide on funds for different types of educationand training, which are included in the same over-all budgets. They are, in principle, subject to thesame administrative rules and procedures and theysuffer from similar operational constraints. In thewake of major steps to decentralize governmentoperations, district and city officials in the PRC arelargely responsible for running schools. Once bud-gets have been allocated, school directors appearto have sufficient room to make decisions as theysee fit. There are signs that school managers are

interested in minimizing bureaucracy, in reducingslippage, in exploring additional funding oppor-tunities, and in effectively involving enterprises inmaking decisions.

The study also finds that reputable vocationalschools manage to negotiate commercial bankloans, international assistance for school expan-sion, or the purchase of equipment on the basis ofexpected future earnings. Such schools use cur-rent holdings, including school income and teachersavings funds, as collateral. These schools mobilizeexternal resources to improve school equipmentand the quality of education.

Good schools have good capacity to repay theloans, and become better schools. However, lessreputable schools are unable to find the funds

needed to improve. The disparity in quality ofeducation is growing between these two types ofschools. Improving the quality of education re-quires financial inputs.

The financial market offers some funding op-portunity. Discussion in the PRC centers on thepossibility of central and provincial governmentsseeking funds from the bond market for TVET de-velopment, for example. Putting the emphasis oneducation as a public good, the government maylike to seek new funding modality for sound TVETdevelopment in the country.


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Recommendations

Based on the findings of this study, the followingactions are recommended to national, provincial,and local policy makers responsible for human

resources development.Increase government spending on(i)education and training. Meet the long-standing, explicit objective of bringingthe share of total public expenditureon education to at least 4% of GDP. Indoing so, the government needs to morejudiciously allocate resources betweendifferent institutions at different levels,and between regions, in accordance witheconomic and social realities and stateddevelopment aims.

Develop and standardize a unit cost(ii)for TVET students. Prepare and apply alegally-supported standard unit cost, tobe developed from scientific calculationmethods, for any TVET student who enrollsin any level, depending on the subject theypursue.

Reduce tuition and other fees.(iii) Eliminateor drastically reduce tuition and otherfees, particularly at senior secondaryvocational schools. Alternatively, regardlessof residence status, students should be

given grants or loans as appropriate. Thiswould greatly improve access to good TVETfor youth from disadvantaged groups,including rural migrants and demobilizedsoldiers.

Ensure that enterprises pay for(iv)TVET. Establish provincial training funds,possibly fed by payroll levies, and giveenterprises that contribute a substantivesay in how the money is spent.

Identify and address current(v)inefficiencies. Before spending more on

TVET, explore opportunities to make betteruse of existing resources. Inefficiencies areassociated with current budgetary practicesand weaknesses in planning, management,and oversight, at macro and micro levels.Identify these inefficiencies based onreliable data and in the light of strategicdirections of TVET development in the PRC.

Review ways of funding capital(vi)investment. To generate and streamlinecapital investment in a carefully planned,transparent, and fair manner, set updedicated public investment banks or loan

guarantee mechanisms at the provinciallevel.

Provide incentives to private TVET(vii)providers. The government should providesubstantive support, including financial/fiscal incentives, to private providers whoset up or expand TVET institutions, andto both public and private providers whomeet agreed quality and output targets inthe local context.

Improve information and analysis on(viii)TVET and labor markets. The Public

Employment Service System shouldconsiderably improve the collection,dissemination, and analysis of pertinentinformation, including detailed educationand training statistics and sufficient labormarket information. It needs to reviewsystem performance and undertake labormarket analyses such as regular labor forcesurveys and tracer studies of graduates.

Improve overall system management(ix)and coordination. Establish effectiveprovincial apex bodies for TVET, to

achieve greater policy coherence, betteroverall management and oversight, and,consequently, additional efficiency andequity. Such bodies should involve publicas well as private providers and otherstakeholders to run the system as partnersrather than as competitors. Importantroles for an apex body include resourceallocation, information sharing, and regularmonitoring and evaluation of systemperformance.


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Data Sources

Government of the Peoples Republic ofChina, National Statistics Bureau. 2008.Grand Reform and Opening and RemarkableDevelopmentReport Series 1 ChinasSocioeconomic Development Achievementsover 30 Years of Reform and Opening Up.Beijing.Government of the Peoples Republic ofChina, National Statistics Bureau. 2008. Livesof Rural and Urban Residents Moving fromPoverty towards XiaokangReport Series5 on Chinas Socioeconomic DevelopmentAchievements over 30 Years of Reform andOpening Up. Beijing.Government of the Peoples Republicof China, National Statistics Bureau,

Ministry of Education, Ministry of Finance.2008. Statistical Bulletin on NationwideImplementation of Educational Spending.Beijing.Government of the Peoples Republic ofChina, National Statistics Bureau. 2007 and2008. China Statistical Year Book. Beijing.


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Financing Technical and Vocational Education and Training in the Peoples Republicof China

Technical and vocational education and training (TVET) systems are often burdened bya range of performance issues. Many of these are rooted in problems that countries,including the Peoples Republic of China (PRC), have in generating and allocating thenecessary financial resources, and in spending them effectively. This note will discusssuch issues and present policy recommendations based on insights gained in AsianDevelopment Bank (ADB)-sponsored policy reviews of TVET in Guangdong and Hunanprovinces.

About the Asian Development Bank

ADBs vision is an Asia and Pacific region free of poverty. Its mission is to help itsdeveloping member countries substantially reduce poverty and improve the quality of lifeof their people. Despite the regions many successes, it remains home to two-thirds of the

worlds poor: 1.8 billion people who live on less than $2 a day, with 903 million strugglingon less than $1.25 a day. ADB is committed to reducing poverty through inclusiveeconomic growth, environmentally sustainable growth, and regional integration.

Based in Manila, ADB is owned by 67 members, including 48 from the region. Its maininstruments for helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.

Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.orgPublication Stock No. ARM091243 Printed in the Philippines

Documents

Adb - Financing Tvet Prc